What does it cost to exit each loan?

Lender-controlled costs paid at close — as rough percentages of the loan amount: lender legal (~0.3-1.0%), appraisal (~0.1-0.5%), environmental Phase I (~0.1-0.3%), property condition report (~0.1-0.3%), title insurance (~0.3-1.0%), and lender processing/underwriting (~0.1-0.3%). Exclude third-party costs you'd pay regardless of lender (borrower's counsel, survey). This keeps the comparison lender-controlled and apples-to-apples.

For straightforward commercial real estate deals, expect roughly 1-3.5% of the loan amount in lender-controlled closing costs. Larger loans see a lower percentage (economies of scale on flat fees like appraisal and environmental); complex deals (hotels with franchise transfer, environmental remediation, mixed-use requiring multiple appraisals) can push above 4%. This does not include the SBA guarantee fee, which is separate — see the next question.

The SBA guarantee fee is what the SBA charges lenders for the government guarantee; the lender passes it through to the borrower at closing. Current schedule: loans ≤ $1M pay 0% (currently waived); loans $1M–$2M pay 1.45% of the guaranteed portion (~1.09% of total loan); loans $2M–$5M pay 3.5-3.75% of the guaranteed portion (~2.6-2.8% of total loan). On SBA deals over $1M, this is often the single biggest closing-cost line item — add it to your 'Closing costs' input alongside standard fees.

A prepayment penalty (aka 'prepay') is a fee the lender charges if you pay off the loan before its stated maturity. It's usually quoted as a percentage of the remaining loan balance and steps down over time. On interest-only loans the penalty is especially impactful because the balance stays at par — a 3% penalty on an IO loan applies to the full loan amount regardless of how long you've been paying interest.

5-4-3-2-1 is the standard 5-year step-down for bank and agency commercial loans: 5% penalty if you exit in Year 1, 4% in Year 2, 3% in Year 3, 2% in Year 4, 1% in Year 5, and 0% thereafter. Each percentage applies to the remaining loan balance at exit. This structure is the default for CMBS conduit, agency multifamily, and bank term debt.

3-2-1 is a shorter 3-year step-down common on SBA loans and short-term bank debt: 3% penalty in Year 1, 2% in Year 2, 1% in Year 3, and 0% thereafter — applied to the remaining balance at exit. SBA 7(a) loans use this only on 15+ year terms; shorter SBA loans have no prepay penalty.

By capital source: bank term loans typically use 5-4-3-2-1 or 3-2-1; agency multifamily (Fannie/Freddie) uses yield maintenance (much more expensive than step-down) or defeasance; CMBS conduit uses defeasance for 10-year fixed; debt funds often use 1-2% flat or a lockout period followed by open; bridge and hard-money loans usually have no prepayment penalty (open) after month 6-12 but often require a minimum interest payment. Match the prepay structure to your exit timing.

On an amortizing loan, you're paying down principal each month — so even if you exit early, your balance (and therefore penalty base) has dropped. On an IO loan, the balance stays at 100% of the original loan for the entire IO period, so the penalty applies to a bigger number. A 3% penalty in Year 2 applies to the full loan amount on IO — versus roughly 92-93% of the original loan on a 25-year amortizing schedule (~7-8% of principal paid down). Over the full IO window, this delta compounds. If you might refinance or sell during the IO period, this matters a lot.

Compare exit cost at the year you actually plan to sell or refinance — not just Year 1. A loan with 5-4-3-2-1 prepay is expensive if you exit at Year 2, but zero if you exit at Year 6+. A loan with 2% flat is cheap at Year 1 but expensive at Year 6. This calculator shows the total exit cost (upfront + interest paid + penalty on balance) at each year so you can match the structure to your real plan.

Sometimes. Banks and debt funds have flexibility on step-down structure and open windows. Agency and CMBS have almost no flexibility — the prepay structure is baked into the securitization. Common negotiation asks: (1) shorten the step-down (54321 → 321), (2) open window after certain conditions (property sale, refinance with same lender), (3) partial prepayment allowed (e.g. 20%/year without penalty). Bring specific asks in exchange for other lender wins.